Conflicts abound for investigators

WASHINGTON — The political and financial reach of Enron Corp. has exposed so many conflicts of interest among U.S. prosecutors, lawmakers and administration officials that the government is struggling to launch its investigation of the company whose spectacular collapse swept away the savings of thousands of employees and shareholders.

Justice Department officials are sending prosecutors to Houston to replace federal lawyers there, nearly 100 of whom have recused themselves from the case.

At the Securities and Exchange Commission, critics have raised doubts about newly appointed Chairman Harvey Pitt, a lawyer whose former client, accounting firm Andersen LLP, is a central, controversial figure in the Enron scandal.

In Congress, elected officials have begun to return thousands of dollars in Enron campaign contributions, even while some who had accepted Enron money prepare for hearings that will examine the company's financial transactions and its auditors' role.

In Texas, a federal judge and the state attorney general have removed themselves from anything having to do with Enron, citing conflicts of interest.

While Enron's failure sent a shock wave through energy markets, it also made plain just how politically influential, and generous, the company and its top executives had been.

That largesse, meted out in the form of millions of dollars in campaign contributions, lobbying and consulting fees, and positions within the company, now may hinder--and perhaps undermine--efforts to investigate just what happened inside the company, once valued at $70 billion.

"When suddenly they [Enron officials] find themselves the target of an investigation, you have to start figuring who are the investigators," said Larry Makinson, senior fellow at the Center for Responsive Politics, a Washington-based watchdog group. "Had the investigators gotten anything from those they were investigating? "

That was indeed the situation faced by U.S. Atty. Gen. John Ashcroft and his chief of staff, David Ayres, both of whom removed themselves from Enron matters last week. Ashcroft had accepted $57,000 in Enron money as a U.S. senator. Ayres, an assistant to Ashcroft in the Senate, felt too close to his boss to be involved in the Justice Department's special Enron task force.

At the U.S. attorney's office in Houston, a different sort of conflict arose, but with the same result. The approximately 100 prosecutors there recused themselves en masse from the case being built against Enron's top executives, chiefly because so many of them are related to or acquainted with area residents who lost money in the company's failure.

In the days leading up to its Dec. 2 bankruptcy filing, Enron blocked employees from cashing in stock from their retirement plans even though top executives had sold hundreds of millions of dollars in shareholdings.

The decision to disqualify an entire U.S. attorney's office from a single investigation might be unprecedented. But in the case of Enron, most legal experts agree it was warranted.

"If you're a prosecutor for whom the Enron bankruptcy has caused a great loss for someone in your immediate family, you can't be involved in that case," said Stephen Gillers, professor of legal ethics at New York University Law School. "It may jeopardize your case on appeal. And even if you do everything right, the public might not believe it. Remember, we want the public to have faith in the case."

The Justice Department has formed a special task force to investigate Enron, but it faces the task of exporting prosecutors to Houston to run the investigation there.

At the Security and Exchange Commission, which is also a lead investigative agency in the case, Pitt has promised to recuse himself from decisions involving his former clients or law firm for a year unless he receives an official waiver.

Shadow at the SEC

As a lawyer in private practice, Pitt represented Andersen and the other Big Five accounting firms that were fighting an SEC initiative that restricts the services audit firms can provide and requires the firms to report the fees companies pay them.

In Texas, the ripple of Enron's influence isn't limited to federal offices. State Atty. Gen. John Cornyn has announced he would step aside from involvement with the state investigation of Enron's trading activities and its subsequent failure. Cornyn has accepted $193,000 in contributions from Enron since 1997, according to the Houston Chronicle. He said he would turn "full authority" for the state's Enron investigation over to his first assistant.